First and foremost, I hope that this posting finds each of you and your families safe and well.
COVID-19 has brought the field of supply chain management into the mainstream conversations of shareholders, board rooms and legislative arenas. Dependencies on foreign production, shortages of essential products and the explosive growth of e-commerce are just a few of the “new” realities that will drive new supply chain paradigms.
One significant paradigm shift will be the need to have Supply Chain Risk Management (SCRM) best practices integrated into the strategic and operational fabric of the operation. SCRM practices that are based on knowing the precise profit contributions for each product, customer and channel and not just relying on standard cost accounting measurements. Differentiated strategies based on performance groupings of customers, products, channels and suppliers and their true margin contributions.
Points Of Focus
COVID-19 has exposed many supply chain related resiliency issues from shortages in product availability to meeting surges in demand. Issues that have caused enormous levels of stress for companies world-wide. As a result, Shareholders and Stakeholders will require supply chain executives to demonstrate what ongoing SCRM actions they are taking to manage risk and increase resiliency. Why? Because their investments and livelihoods depend on it. SCRM strategies and actions will be a key part of the expected table stakes to attract and maintain investors as well as employee talent. Just having a SCRM contingency plan that sits on the shelf will no longer be acceptable.
Technology will play a vital role in effective SCRM programs. Much of the current discussion around technology and supply chain disruptions focuses on having end to end supply chain visibility. This inferably leads to discussions focused on Control Towers and Asset Mapping solutions. Clearly these solutions provide critical information when minimizing the time it takes to react to a disruption. In addition, Network Analysis, Inventory Planning and Simulation tools play an important role in examining alternative long-term scenarios that can add resiliency while balancing cost and service.
But there is another form of end to end visibility that is equally important. Visibility to the wide degree of variation in margin contributions for customers, products and channels. In fact, for many companies less than 15% of their customers and the products they sell contribute 80% of their net operating margin (the 80/20 rule seems to have been broken).
Effective SCRM resiliency strategies must be based on having precise measures of profit contributions related to the key elements of a supply chain: customers, suppliers, products and channels. Having this type of visibility provides actionable insights on where priorities should be established based on where disruptions will hurt the most.
The impact of the Trade Wars and COVID-19 have significantly stretched the resources and cash reserves for many organizations. Creating SCRM strategies and making subsequent decisions that protect the majority of operating profits and net cash flow is critical to long term sustainability.
Having specific and accurate profit insights empower decisions that smartly allocate resources and produce a much higher ROI for supply chain resiliency investments. Resiliency measured by the “protection of profits” and reported to Shareholders and Stakeholders reported on a regular basis.
How will your company prioritize its supply chain resiliency decisions? Doing nothing is clearly the path to extinction. Generalized decisions may allow for survival but making repeatable, intelligent profit based SCRM decisions is key to not just surviving but thriving.
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All the best,